SB 350-4 DAM POOL JOINT ACTION AGENCY  CHAIR CON BUNDE announced SB 350 to be up for consideration. SENATOR GARY STEVENS, sponsor, moved to adopt CSSB 350(L&C), version \D, for discussion purposes. There were no objections and it was so ordered. SENATOR GARY STEVENS explained that CSSB 350(L&C) allows the Four-Dam Pool Power Agency to refinance a substantial loan that they have owed to AIDEA [Alaska Industrial Development and Export Authority] returning about $73 million to the state, which the Legislature could use or redirect AIDEA to use. It also provides several technical corrections in support of this financing that have been requested by bond counsel. It supports refunding money to consumers by lowering their interest rates and also enhances the options available to the Four-Dam Power Agency concerning Interties and other activities. MR. THOMAS LOVAS, Chief Executive Officer, Four-Dam Pool Power Agency, said SB 350 is supported by the five communities that participate in it - the City of Kodiak and its environs, the Valdez Copper Valley Basin area and the Cities of Ketchikan, Petersburg and Wrangell. These communities all banded together, as you recall, in the year 2000 and formed the Four-Dam Pool Power Agency with the intent that it would be a priority provided by the Legislature to acquire the four hydroelectric projects previously owned by the State of Alaska. The financing of that particular transaction was with the loan from the State of Alaska through the auspices of the Alaska Industrial Development and Export Authority. It provided for a multiple year's financing vehicle for the acquisition. The funds were a cash transaction from AIDEA, which was transferred ultimately over into the Power Cost Equalization Program. At this point in time, the utilities and the agency representing the utilities have paid down a portion of that debt; the interest rate is at about 6.5 percent. What we have found in the past year of operation is that the history of our organization and our structure is such that we can now consider alternative forms of financing including the ability to actually form a bond sale of the tax-exempt note [indisc.] to offset that high cost note with AIDEA. We understand that the structure of the agency was established as a tax-exempt authority for its purposes in providing public power for the communities and the members and we would like to move forward on the process. The technical corrections we have requested to the enabling legislation in the formation of the pool do a couple of things. It provides a technical correction to ensure our ability to issue tax-exempt debt on behalf of these communities and their citizens; it also includes a clarification of our ability to use the project as an effective security for a mortgage note or any other vehicle that we would ultimately come up with under a refinancing alternative. It also insures that the projects will remain in the service of the communities when they are assigned as security for this debt. As Senator Stevens indicated, the legislation does provide a potential significant savings to the communities on a lower interest rate as well as bringing in a significant amount of money into the hands of AIDEA in the refinancing of that particular note. I might mention, also, that the Four-Dam Pool Power Agency passed a resolution in its December meeting supporting the concept of refinancing using these types of tax-exempt bonds and we appreciate your consideration of the technical amendments to help that promise come true. That clarifies, I hope, the intent of the legislation. I believe it's a very beneficial piece of legislation that works for the benefit of all residents of the State of Alaska, as well as providing for the needs of the Four-Dam Pool Power Agency. Thank you very much. CHAIR BUNDE commented that refinancing costs money, in his experience, and asked him why this method of financing wasn't chosen initially. MR. LOVAS replied that he became employed by the agency about a year and a half ago, but his understanding is that various mechanisms were looked at then, but the agency didn't have any history and the most expedient form of acquiring financing was the note through AIDEA. MR. BOB LERESCHE, Financial Advisor, Four-Dam Pool Power Agency, agreed and said the agency had no credit when it was first formed and these bonds have been very costly, if not impossible, to issue. He pointed out that when AIDEA did this financing, the interest rate of 6.5 percent was good for credit of this quality. "Times have changed and the agency can get a better deal for their ratepayers and at the same time return $73 million cash to AIDEA." CHAIR BUNDE asked when the Four-Dam Pool communities issue debt, will the full faith and credit of the State of Alaska still be the ultimate backer of those bonds. MR. LERESCHE replied, "No, there will be no state credit backing, whatsoever, of these bonds." SENATOR HOLLIS FRENCH asked what the likely new interest rate would be on financing of this nature. MR. LOVAS replied that interest rates could potentially go as low as 5 percent, maybe less. Two things would be necessary, one would be to obtain an appropriate credit rating from a registrar of a grading agency of credit and the other would be to look at potentially insuring the bonds with a relatively modest fee. We believe in the range of 4.8 or 5.0 percent is a reasonable expectation for us, if we can move forward immediately and act in the markets within a very short period of time. SENATOR FRENCH asked if this would be a mortgage or a bond. MR. LERESCHE replied, "It's a bond, but it might well include a mortgage as part of the credit." SENATOR FRENCH speculated that was the hitch - that ownership of the pool could fall into hands outside the state, if it couldn't meet its obligations. MR. LERESCHE replied: I guess theoretically so. However, when you issue a bond in the open market as the agency is intending to do, nobody wants to own the project. It's just mostly really a psychological crutch to make them think they really have control over these people if they don't pay them. I might point out as well that the current AIDEA loan includes a mortgage just as we contemplate attaching to the new bond. SENATOR FRENCH queried: If you were to refinance the total amount at 5 percent, what would that do for the debt service? How much would it go down and what do you expect that would do, if you've calculated it to the average homeowner's electric bill? MR. LOVAS replied: We've estimated as much as an annual savings of between $800,000 to $1,500,000 depending on certain implications of the use of the tax-exempt debt. There are some complications having to do with securities laws on how the tax-exempt debt could ultimately be applied among the municipalities versus the cooperatives and it affects the total net savings we're likely to see. In any case, it's going to be at least that minimum sum then. I haven't quite measured it all the way down to the ratepayer, frankly, because I'm looking at it from the agencies' point of view - a wholesale power sale. We don't sell retail. We sell as wholesale at the G&T for power delivered to the utilities for resale to their ultimate customers. The impact can vary depending on what the retail rate of each of my members is. But, in any case, that reduces the debt service cost rather significantly by about upwards of $1.5 million and it would have a multiple percentage reduction in our wholesale power rate. SENATOR FRENCH asked what current debt service costs per annum. MR. LOVAS replied that the debt service now is about $6.5 million per year. CHAIR BUNDE thanked them for their testimony and said there were no further comments to come before the committee on SB 350 today and that he would hold it for a time. SB 350-4 DAM POOL JOINT ACTION AGENCY    CHAIR CON BUNDE announced SB 350 to be back before the committee. SENATOR RALPH SEEKINS moved to pass CSSB 350(L&C), version D, from committee with individual recommendations and attached fiscal note. SENATOR HOLLIS FRENCH asked if it had another committee of referral. CHAIR BUNDE confirmed that it went to Finance. He asked for a roll call vote. Senators Hollis French, Bettye Davis, Gary Stevens, Ralph Seekins and Chair Con Bunde voted yea; and CSSB 350(L&C) moved from committee. There being no further business to come before the committee, Chair Bunde adjourned the meeting at 2:30 p.m.